Why Silver’s Heading Ho-Ho Higher!

December is already shaping up to be a strong month for silver. But smart investors might be singing “Silver Bells” well into the New Year. That’s because 2013 looks to hold even more promise for the metal.

Today, we’ll look at five reasons why silver is set to shine, and a couple potential ways to play it as it heads ho-ho higher in the coming months.

You can see that silver bounced from support at its 200-day moving average earlier this month, then pushed above overhead resistance around its 50-day moving average and seems to be headed higher.

I think it’s going to test more overhead resistance around $35.50 per troy ounce, and that’s just for starters. Silver could go MUCH higher next year.

Take a look at the bottom of the chart. There you’ll see an indicator showing the price of silver divided by the price of the S&P 500. Since early November, silver has been outperforming the S&P 500. This relative outperformance makes silver very attractive to investors.

Are you trying to ride this trend? Are you nervous as heck? I don’t blame anyone for being nervous in this market. If you’re worried, you could always buy silver and place a protective stop below near-term support, say at around $33 for spot silver. For the iShares Silver Trust (SLV), that’s around $32.

But there are other ways to play it. Since silver is outperforming the S&P 500, and stocks remain under pressure, you could go long silver and short the S&P 500 at the same time for a double-barreled potential profit play.

If you have a stronger stomach for volatility, you could buy the SLV or a silver futures contract and place a protective stop just below the 200-day moving average.

Of course, if that strong support is broken, Santa won’t be coming to town for the precious metal. But the odds are good that silver IS going to have a good holiday. Here are some reasons why …

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KO Blow for Oil?

China’s slowdown is rippling across the economy … and nowhere is clearer than commodities like oil. As places like Europe fall into fiscal slumps … demand for oil is sinking quickly — and oil prices are showing every bit of it.

But with the Fed’s new QE-Infinity program … you could see oil prices explode as all those new greenbacks drag down the dollar’s buying power!

China’s slowdown is rippling across the economy … and nowhere is clearer than commodities like oil. As places like Europe fall into fiscal slumps … demand for oil is sinking quickly — and oil prices are showing every bit of it.

But with the Fed’s new QE-Infinity program … you could see oil prices explode as all those new greenbacks drag down the dollar’s buying power!

Only twice before in history have U.S. presidents run for a third term. Obama may be the third.

But it has nothing to do with his progressive politics or his lock on minority voters. It’s not his willingness to raise taxes on the rich or the benefits and opportunities he has given to average Americans.

We are starting to see indications that China’s slowdown may be coming to an end.

The China HSBC Flash Manufacturing Purchasing Managers Index rose to 50.4 in November. That’s the highest reading in 13 months. A sub-index measuring output also rose to 51.3, the highest level since October 2011.

China builds a lot of electronics, and electronics use a lot of silver.

Speaking of that …

Silver Bell #3:

Industrial Demand for Silver Is Expected to Rise

Industrial demand accounts for around 55% of overall silver demand, and 2012 was a weak year for industrial demand. So it’s interesting that industrial demand for silver is now expected to rise by 7% in 2013 to a new record, according to a report from the Silver Institute.

The Silver Institute expects industrial demand for silver to climb another 6% in 2014. Growth in demand should be driven by silver-oxide-catalyst production and the photovoltaic (solar-to-electrical power) industry.

China is expected to play catch-up with the U.S. in terms of industrial demand, with the two nations combining to provide over 40% of industrial demand.

Traders buy the future. If they think industrial demand for silver is improving — and it certainly seems to be — they’ll buy silver ahead of that demand.

Silver Bell #4:

Fund Holdings of Silver Hit a Record

Silver ETF holdings recently reached a record high.

Source: Hard Assets Investor

According to Hard Assets Investor, overall silver ETF holdings rose to an all-time high of nearly 19,000 tons recently, surpassing the level of April 2011 when the silver price peaked near $50 an ounce.

But what about all holdings of silver, including repositories, mutual funds, and electronic precious metal sources? Nick Laird at ShareLynx.com has a good chart on that …

Source: Sharelynx.com

As you can see, holdings of silver are rising across the board.

And funds continue to add to their silver stockpiles. Earlier this month, Sprott Physical Silver Trust (PSLV) announced it was raising money to buy more physical silver.

Sprott is raising at least $269.5 million for silver purchases, and as much as $310 million worth if the underwriters exercise the over-allotment option in full.

That ought to put a bottom under the metal.

Silver Bell #5:

Is The Dollar Poised for Another Leg Down?

The U.S. dollar has enjoyed a great couple of months, but the big picture isn’t so rosy. Take a look at this weekly chart of the U.S. dollar index …

Looking at the chart, it sure looks like the US Dollar Index is tracing out a head-and-shoulders top.

Recent price gains have NOT been confirmed by momentum. In fact, there is a strong divergence, which is usually a bearish indicator. A break of the neckline could send the U.S. Dollar Index down to $74 rather quickly.

And since precious metals are priced in dollars, they usually move in the other direction. A leg down in the dollar could be very bullish for silver.

New money-printing efforts in Japan, the U.K. and mainland Europe could limit the dollar’s decline. But remember, our own Fed is printing a lot of money of its own — about $45 billion a month — and the fiscal cliff remains a wild card.

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Obama to retain power through 2020?

Only twice before in history have U.S. presidents run for a third term. Obama may be the third.

But it has nothing to do with his progressive politics or his lock on minority voters. It’s not his willingness to raise taxes on the rich or the benefits and opportunities he has given to average Americans.

Only twice before in history have U.S. presidents run for a third term. Obama may be the third.

But it has nothing to do with his progressive politics or his lock on minority voters. It’s not his willingness to raise taxes on the rich or the benefits and opportunities he has given to average Americans.

If silver does push above $35.50, there is no obvious technical top until around $42. And panic-buying could send the metal sprinting to $50.

Still, one lesson we can learn from the holidays is that good times don’t last forever. If and when the price of silver springs higher, you know that it will be followed by higher margin requirements in the futures market. Rising margin requirements were the trigger for silver’s steep decline at the end of April 2011.

But it could be a heck of a holiday party until that happens. Happy Holidays, and may Santa make your precious-metals wishes come true.

All the best,

Sean

Your thoughts on “Why Silver’s Heading Ho-Ho Higher!”

Dear Sean I am a follower of Larry Edelson you too should get on the same page,Larry is telling us silver & gold are not ready to go up, gold can go to 1,400 silver can go to $ 21.00 It is still nice to here from you Phil Romano

I have been setting on about 12 or 13 hundred ounces of silver for about 25 years now. Where should I go I go to sell this physical silver? It is mostly in 100 oz. bricks. Or what type of people should contact for this purpose?
Dave from North Carolina

We disagree on the shorter-term, Larry is bullish longer-term. But I think that bullish economic news out of China is on my side. And if you follow my twitter feed, https://twitter.com/SeanBrodrick, you’ll see a link on how sales of silver eagles are soaring. That’s one of the pieces of the puzzle that has been missing.